Electrokit | IADB

Technical, Operations, and Maintenance Practices Performance Contracts

Performance Contracts

The use of companies that perform engineering and support activities is encouraged, and the contracts established must have their payments conditioned to performance indicators (execution time, technical indicators, energy efficiency, and others). For main activities, it is also recommended that outsourced companies be used to establish an efficient cost benchmark between activities developed internally and by third parties. In general, there are three types of contracts that are used:

a. Full-Coverage Service Contract: A full-coverage service contract provides 100% coverage of labor, parts, and materials as well as emergency service and preventive maintenance. The Contract must be measured and paid for the performance of the equipment for which it is responsible. This type of contract is recommended for areas where the company has low coverage or for the most critical equipment. Full-coverage contracts are usually the most expensive type of agreement in the short term. In the long term, however, such a contract may prove to be the most cost-effective, depending on the owner’s O&M objectives. Advantages of full-coverage contracts are ease of budgeting and the fact that most of the risk is carried by the contractor. However, if the contractor is not reputable or underestimates the requirements of the equipment to be insured, the contractor may do only enough preventive maintenance to keep the equipment barely running until the end of the contract period.

b. Full-Labor Service Contract: A full-labor service contract covers 100% of the labor to repair, replace, and maintain most equipment. The owner is required to purchase all equipment and parts. Some preventive maintenance services can be included in the agreement along with minor materials. This can be the second most expensive contract regarding short-term impact on the maintenance budget. This type of contract is usually advantageous for medium or big companies who can buy in bulk and obtain equipment, parts, and materials at reduced cost. For small companies, cost control and budgeting become more complicated with this type of contract, in which labor is the only constant. Because they are responsible only for providing labor, the contractor’s risk is less with this type of contract than with a full-coverage contract.

c. Preventive-Maintenance Service Contract: The preventive-maintenance contract is generally purchased for a fixed fee and includes several scheduled activities. Generally, the contractor provides the materials as part of the contract. The contract may or may not include arrangements regarding repairs or emergency calls. This type of contract is recommended only for specific situations, such as substations and special equipment (voltage regulator, capacitor bank, reclosers, etc.). The main advantage of this type of contract is that it is initially less expensive than either the full-service or full-labor contract and provides the owner with an agreement that focuses on quality preventive maintenance. However, budgeting and cost control regarding emergencies, repairs, and replacements is more difficult because these activities are often done on a time-and- materials basis. With this type of contract, the owner takes on most of the risk. Without a clear understanding of preventive-maintenance requirements, an owner could end up with a contract that provides either too much or too little.